The GfK measure of UK consumer confidence for January plunged by 8 points marking its largest single-month drop since 1994.

Confidence now sits at the 27the percentile of its 10Yr range and is only at the 18th percentile of the 10Yr orders queue.

Range and percentile data on the 12-past months agree that the household financial situation is weak. The General economic
situation is 'not bad' by the standards of the last two years but place it in the 10yr queue and the percentile standing drops from the
71st percentile to the 32nd percentile; it is more than halved.

Inflation expectations are creeping to a higher zone: the 83rd percentile when placed in a 10Yr ordered queue. The ease of savings is
now roughly a bottom third of the range event.

Over the next 12-months the factors cited in the above paragraphs get worse. The expectation for the household financial situation
drops to the 6th percentile of its range. The general economic situation drops to the 21st percentile of its range. The savings rate
stays locked at the 36th percentile but expected inflation ratchets up to the 96th range percentile. The assessment on major purchases
posts an 11th percentile reading.

The kicking in of austerity may be good for the UK's long term health but make no mistake about it, in the year ahead people are
retrenching and fearing the worst. Upper income earners are taking it a little less hard than are lower income earners but both income
classes are giving very low readings to their assessments for 2011.

Since Germany has adopted austerity it makes it hard for this closest competitors not to follow. The UK in fact has some scope for
separate policy since it has a separate exchange rate from Germany (and EMU) that could drop to restore competitiveness if the UK did
not retrench enough. But it is Germany's competitiveness in the Euro-Area where Germany has been burnishing is advantage. This is being done
in a zone where currency depreciation is not an option. Within that zone is where the real challenge lies. German inflation has been lower
than inflation in every large Euro-Area country since the zone itself was formed. Not following Germany when it retrenches can have severe
long terms risks, as Greece and Spain are finding out. Of course Germany also tolerates relatively high unemployment, making it an unusual
yardstick for other economics against which to measure themselves.